Readers' comments

Here's my interpretation of why there's more progress in micro than macro.

In microeconomics one can usually get a good approximation by ignoring the complex psychology of human decision-making and modeling everyone as a perfectly rational homo economicus. This makes analysis a lot simpler. Multivariate calculus and the KKT conditions aren't trivial, but they're well understood by now and are far simpler than the mysteries of the human brain.

For example if you're trying to predict whether someone will buy 10 kilogram package of some commodity for $10 or instead buy 10 separate 1 kilogram packages for $X each, the homo economicus answer is trivial: buy 1 big package if X > 1 and 10 separate packages otherwise. There's no grand theory of psychology so (as far as I know) one cannot handle real homo sapiens without running an experiment. The psychological imperfections matter if you're trying to model well enough to e.g. run a grocery store, but the homos economicus approximation is good enough to be very useful.

In contrast macro seems to depend crucially on ugly details such as what sorts of mistakes people make when they're trying to be rational. Models that ignore these details and use homos economicus (e.g. http://en.wikipedia.org/wiki/Policy_Ineffectiveness_Proposition) tend to predict a world that has no market crashes nor business cycles, which needless to say is not the world we live in. To make matters worse if a good model were found its publication could easily allow for arbitrage opportunities that make it no longer useful. For these reasons a deep understanding of macro seems very hard. Macro today is like electromagnetism before Maxwell: there are some useful empirical models but no deep understanding of why those models work. As far as I know there aren't any macroeconomic models that capture the business cycle that are principled enough to deserve to work.

You are definitely not an economist. Microeconomics benefit from mathematics and predictions only in a first stage. Nowadays, most of the edge of innovative work in microeconomics comes from application of psychology to the understanding of the economic behavior of individuals.

Microeconomics is the study of how households and firms make decisions and how they interact in markets.Macroeconomics is the study of economy-wide phenomena,including inflation, unemployment, and economic growth. Microeconomics and macroeconomics are closely intertwined. Because changes in the overall economy arise from the decisions of millions of individuals, it is impossible to understand macroeconomic development without considering the associated microeconomic decisions.For example, when we are doing the research about inflation, macroeconomists study whether should mention the reserve ration, whether should adjust the interest and when and how much to adjust. However, microeconomists study how people should invest to avoid the currency devaluation under this condition.But when considering improving the ration it should also combine people's behavior.Like when considering how to invest should also consider national policy.So, microeconomic and macroeconomic are close to each other, they cannot be divided to research.

This conversation is not only about micro and macroeconomics, it’s about the methodic. Microeconomics is more obvious and closer to life – and has a large field for new developments. There are a lot of unrevealed Nobel prizes, still waiting for their owners, especially in the institutional branch. And when it meets the game theory – the common sense combined with the good theoretical base makes its job.
There are lots of decisions that are waiting for the wise guidance and for a really original person, who dares to challenge the problem that no one has yet coped with.
The last thing I wanted to say is about intuition. It` s not only the microeconomics that needs it. Econometrics can’t even exist without predictions and good or bad attempts. So it’s not about the luck. Well, not always. And economics as a whole can not exist without econometrics. So it goes.

Microeconomics may be less contentious, but it's small business (as a definition) compared to the issues of macroeconomics. How the BoE organizes its auction is of very little importance compared to the policy it conducts (QE? HeliMoney? Rates? Inflation?).

Macro is in dire straits because it had been destroyed by Lucas and other supply side economists. It turns out that they were ideologically biased (or they would not endorse Romney today), and that their theories have no relevance in a context of depressed demand, deleveraging and ZLB.
The result is the worst recession in 80 years. And because it promoted those economists and their theories, the Nobel committee certainly bears a responsibility in the process.

Nope. You're wrong. Modern macroeconomics is microfouded, i.e., is a sort of aggregation of micro (individual) issues, whose lack of description in the "ancient" macro was the real cause of its replacement. By the way, modern macro isn't either "supply" o r "demand" sided. Besides not only what you call "supply side" economist but also the so called Post-Keynesian economists still developing microfouded models of the actual macroeconomics. Finally, do you really thin that financial institutions would give a damn about what a professor of economics like Kenneth Arrow, Gerard Debreu, Paul Krugman, J. Stiglitz, etc., says about how to stop the financial inniovations that lead us to the crises? You maybe would find useful the book by Carmen Reinhard and Kenneth Rogoff (2009): "This Time is Different" that in a very accesible language shows how the crises usually has to do with such aforementioned financial innovations. [Sorry for my use of English, which isn't my mother langue] Cheers.

It's the aggregation process we have trouble with. Stuff like Arrow's impossibility theorem (and variants) and the Cambridge capital debates call into question the validity of making conclusions based on aggregation assumptions.

Arrow's theorem deals with aggregation of individual preferences into a meaningless social welfare function, that turns out to be intravsitive and then paradoxical. Cambridge debate is actually an empty space. Please note that I'm not an advocate of conservative or liberal trends, but a convinced of the methodological benefits escaping the internally inconsistent analyses like, e.g., the IS-LM and related schemes that, you should have noted also, are macro models that neccesarily aggregate individual data into figures like aggregated supply and demand, or GDP or the like. Am I wrong?

If Arrow's theorem holds, then the aggregate utility function will not reflect the preferences of individual agents, and thus an aggregate demand function will be useless. Cambridge debates brought up a few good points about the nature of the production function and how an aggregate supply function based off marginalist theories will not be well-behaved and have stable, or unique, equilibria. Both have a similar theme of invalidating the aggregation of complex individual functions of utility and production into simple aggregate ones, thus debasing the whole concept and methodology of "microfounding" macroeconomic theory.

I'm not an economist. But it's my understanding that macroeconomics and politics are intertwined with each other. What with the banking crisis, global credit crunch, fiscal policy failures, monetary policy failures. These are all politically charged issues. I've grown increasingly frustrated with macroeconomics. It seems like there are hundreds of interpretations of the same macroconomic issue. I've tried to devote myself to reading literature from different schools of macroeconomic thought. The more I read, the more frustrated I get. This is why I think macroeconomics has been less useful, because it's been in bogged down in all these political disputes.

You're exactly right! Econ was less ideological before Keynes. Keynes' economics was a thinly disguised defense of democratic socialism. That is clear from the last chapter of his last book.

Mises argued that economists abandoned the monetary theory of business cycles because it demonstrated the cause to be in the monetary system and not inherent in capitalism. I think there is a lot of truth in that.

Check out Roger Garrison's book "Time and Money." Garrison is an econ prof at Auburn and follows the Austrian school of economics, but his book is honest about the other schools. He compares Austrian, Keynesian and neo-classical (the dominant school today).

Hahaha, only if by "real economists" you mean the tiny group at GMU and Auburn who didn't notice that economics kept going after 1930.
(they're not real economists, FYI. they're political shills with PhDs.)

I earned an MA in mainstream economics before learning Austrian econ, so I can fairly judge both. I doubt you know anything at all about Austrian econ.

Just because Austrian economists are a tiny minority doesn't mean they're wrong. Look at the failure of mainstream econ to even see the worst depression since 1930. And there is the failure of mainstream to come up with any policy to restore the economy. Mainstream economists have destroyed the public's confidence in the field.

A "MA in mainstream economics" doesn't actually qualify you to say anything about modern thought. Have you ever actually even read a paper of the mainstream economics you hate so much?

By the way, they're not wrong because they're a tiny minority. They're wrong because they haven't updated their methodology in nearly a hundred years, and are stuck still trying to explain "what Hayek REALLY meant."

Macroeconomics is not well understood nor properly taught. No school of thought in this subject has become dominant but the various kinds are all incomplete and the subject is thought to be too hard to tackle all at once. This is not the answer. What is needed is a model where all of the social system is represented. I have done this and it is available in a block and flow diagram, see Wikipedia Commons Macroeconomics: DiagFuncMacroSyst.pdf
Using this fully comprehensive representation for six idealized functional entities and their 19 money and goods mutual flows, a viable macroeconomics theory is at last possible.

That was true of macro before Keynes. In fact there was no division of economics into micro and macro. Theories of how the national economy worked were built up from theories of how firms and markets work. That is essentially what Austrian macro is.

Keynes kicked over the milk bucket and it took half a century to realize what a mistake he had made. Macro economists are trying to get back to a micro foundation, but their addiction to Keynesian aggregates is too great, still, to achieve much.

The ascendancy of microeconomics is hardly surprising. Even in the 1980s in the aftermath of the rational expectations revolution there was a joke about macroeconomics, perhaps inspired by the Lucas critique -- "there are only two kinds of macroeconomics, one is called microeconomics and the other is called stories!"

Idea of coop game theory is good. However in developing country it is difficult to pass it. That is what it is seen in the last decades, eroded the coop. Banks. These cooperative banks given permission to set guidelines of uplift the social services and microeconomic manner. However it was bankrupted with mismanagement.

However comparing with macro and micro economic structure, micro economy plays good role in the Transitional economy. That is the reason how it is sustained in economy under Transitions, where in no country sucess in Transition in the global front. That is why after research made on this we found / innovately slogan given as >> agro-economy is super economy under Transitional economy<<< e.g., india.

But the debate over macro has micro roots. Austrians base their macro on micro while mainstream econ says micro doesn't matter to macro. If you think macro should be based on micro, then you should read Austrian econ.

Well, that goes to the issue of methodology. Mainstream econ since the take over by neo-classicals have attempted just that. That have been trying to sift through massive amounts of historical data and distill theory from it. Their inability to see the latest crisis coming is the fruit of that effort.

The historical data is too vast and contradictory to achieve any kind of consistent theory. As a result, much of economics is nothing but description, not explanation. Economics requires a method appropriate for the subject.

The fact that theorists can't actually form reliable systemic models doesn't stop them from continuing to attempt to do so, and continuing to present their contrivances as trustworthy guides for policy making, rather than the fictitious, politically-motivated guess-work that they truly are.

Why should they? Their f...-ups don't effect them in their academic sinecures - it's everyone but them who takes it up the ....

You're right. No one holds economists accountable these days. I don't hold out a lot of hope that mainstream econ will improve. You would think that the latest crisis would shake their confidence and cause them to rethink the foundations of their understanding. But it hasn't. They are full of excuses.

But for the most part I don't think any economist has much influence. Politicians have their own economic ideas and they refer to economists only when they need an academic rubber stamp for their crackpot ideas.

fundamentalist, do you have any idea what you're talking about? One of the main features of modern macro is microfoundations. I realize that you don't know anything about modern macro (since you seem to think that anything the Austrians say is relevant), but that's a fundamental characteristic of modern thought.

That is simply not true. Mainstream macro models added a "representative agent" and claimed they had included micro foundations. Economists have griped for decades about the disconnect between macro and micro and still do.

Cooperative game theory applies, also, the the study of jazz. Musicians cooperate to create and sustain the conditions of swing.Each musician brings a particular expertise and identifies the time and key sinature in order to join the performance. This is like "knowing the rules" of play. The experiecne is an inclusive one; anyone with the ability to identify time and key signatures can join, actually or virtually. What's more, the audience can participate too by snapping fingers, bobbing heads, or otherwise engaging the music.

The cooperation on stage has transferece to organizational structure(corporate and nonprofit, across sectors); hiring (internal interactions and brining in new hires); diplomatic endeavors; and the study of population movements across geopolitical borders (migration and integration) -- at least.

Yes, microeconomics holds great promise and its sound -- cooperative game thoery -- is swing.

Indeed, and your commet indicates the historical trend of disciplinary segregation. Learning does not happen in a vacuum, it is in integrated experience. Newton, Galileo, and Euclid knew this -- we have forgotten this in our quest for rigid disciplinary boundaries and categorization which I'm guessing might be consistent with the 1859 publication of Darwin's The Origin of Species. But for now...

The successes of micoreconomic theory comes from a process -- discovery, analysis, application/articulation -- that is par tof learning, broadly. When we integrate fields of knowledge, we create intellectual disruptions that stimulate thinking as the struggle for meaning is engaged. In other words, we create the conditions for innovation to occur. Those trained in design, for example, have much to say about organizational structure; though professionally they might deal most often with buildings, bridges, and urban spaces, designers have knowledge that is transferrable to other fields. Similarly, those trained in cultural studies or music/creative or performing arts can have meaningful contributions to consumer behavior and in forming theories that can yield meaningful insights to seemingly disparate realms.

The challenge is to get out of an intellectual box, dare to experience disruption and perchance create something worth sustaining.

Actually, I think it would. Studying jazz teaches collaboration, resilience, innovation (improvisation) and teaches people to be "comfortable" with uncertainty. Let's see, there are also lessons to be gained in: organizational structure; building teams; talent identification; and leadership, at least. Such, skills would make people more employable and would allow HR to better identify skills and talent.

Agreed. People create or determine policies. So, if we train people to think differently, more inclusively or collaboratively -- to integrate multiple voices into the policy-making conversations (think cooperative game theory and swing jazz) -- we can create different types of policies, different and unanticipated outcomes (think cooperative game theory again here).

So, microeconomics has realized substantive gains in value as its theories have proven more useful, relevant. Deeper intellectual integration might well surprise us with the usefulness of outcomes bc we'd be pulling talent and knowledge resources from a broad array of thinkers and potential policy makers. Changing the culture of how policy is determined.

Typo: 'The big idea is that changing prices in a two-sided market triggers a more complex chain of events that the simple “price up, quantity down” of a regular firm.' The second "that" should read "than."

This is what I find so fascinating about this topic -- the "cooperative" component is akin to swing. So, as in swing (jazz) when we continuously add new musical voices (instruments) we cannot know the outcome. Algorhythms cannot even predict this bc the capabilities fo the human mind are so vast. The heavily emotional part of the two-sided scenario (or multi input/output) create complications that cannot be determined precisely.

I have written about Game theory and jazz but until now, had not considered cooperative game theory. Good stuff here.

This is what I find so fascinating about this topic -- the "cooperative" component is akin to swing. So, as in swing (jazz) when we continuously add new musical voices (instruments) we cannot know the outcome. Algorhythms cannot even predict this bc the capabilities fo the human mind are so vast. The heavily emotional part of the two-sided scenario (or multi input/output) create complications that cannot be determined precisely.

I have written about Game theory and jazz but until now, had not considered cooperative game theory. Good stuff here.

Another reason why micro is experiencing a golden age is the availability of data at a level of detail never seen before. Data is now available for nearly any possible question, and there is so much to discover, we will never be unemployed. The monopoly on data production is no more with the Census Bureau or other statistical institutes. Data can be collected by any web user.
Furthermore, micro has a much larger set of theories to draw on than macro -- explaining everything from the marriage & dating market to the dynamics of commodity pricing. And again here, the theory is lagging behind; presenters in economics research seminars are usually bombarded with questions because we can now test alternative stories. We don't need to stick to mainstream economic frameworks. Also with more data, models are more often rejected than not.